How plan to free millions in container deposits will work

For years, shipping lines have pressed shippers and clearing agents hard with stiff charges in form of deposits paid for containers that they have to keep for a limited number of days.

The deposits have been described as one of the biggest non-tariff barriers to regional trade. For example, a clearing agent must pay $4,000 (Sh516 000) for a single container; when one has 20 containers, this translates to over $ 100,000 (Sh13 million).

It takes about 25-30 days to take cargo to South Sudan and another 15 days to have the deposit refunded by shipping lines. For about 45-60 days an agent’s operating cash is fully held up.

It is on this backdrop that a new initiative by a Swiss-based firm to offer an alternative to the punitive container deposit has become a major reprieve.

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Robel Nuguse, Director at Ronash Limited, a company involved in clearing South Sudan-based cargo and who has already been onboarded into the solution, says that it is one of the greatest transformations the freight forwarders industry has witnessed in recent years. The service they are offering, he said, has solved a very big problem in the cargo clearing logistics.

“The main challenge in this industry is container deposit,” Nuguse said.

The container deposit, he said, has blocked small firms from seeking more business afraid that they will end up not delivering due to the challenge of cash flow.

Although shipping lines have a right to secure their containers, the amount in question has greatly hindered the sector’s growth.

VCS is now making guarantee to a shipping line or agent on behalf of registered customs agents, freight forwarders, and shippers against which the shipping line or agent will waive the container cash deposit.

If you go by statistics, in Mombasa, we are talking of 1.5 million containers per year and Dar es Salaam 900,000 to 1 million containers.

 Kenya Ship Agents Association CEO Elijah Mbaru contends that the risk of returning empty containers  is enormous for liners and charters as well as container leasing companies, hence the reason why they ask for container deposits as collateral.

There are also a lot of trade imbalances in the region at a ratio of 80 to 20 percent for imports and exports respectively, raising the risk profile further.

“Containers are supposed to be moving with the ships since this is how they make money. A container at the port is safe but that is not where it is supposed to be. If a container is locked at the port due to delay, that container would have made another round,” Mbaru said.

“It is not in the interest of the shipping lines to collect a container deposit. If you look at the cost of a container, it is enormous. Unreturned containers are money paid out elsewhere in terms of shipment that would have otherwise been transported by the same container. The container deposit is not money kept by shipping lines. It is like collateral the way you can take a loan. A container is a very expensive subject and I think you can see in the market that shipping lines have lost containers and we see in Kenya today we have containers unreturned by customs agents for 20 years. You can imagine the amount of money the shipping lines have lost.”

Mbaru said the VCS idea is a good thing in the industry because it will go a step further to enhance seamless operations.

The long-term benefit is that if the customs agents embrace these initiatives coming in the market, in the long-term, the gain could be quick movement of equipment and the shipping lines could be exposed to less risk of unreturned containers because third parties could have committed to pay if clearing agents do not return them.

Kenya is learning vital lessons from Tanzania where the solution was launched in 2020 to cater to the commercial interests of the shipping lines while allowing their customers the flexibility of using a business-friendly alternative to container cash deposit. The introduction of VCS in Tanzania has successfully improved the cargo clearance process through Dar es Salaam port. Customers no longer need to worry about raising cash deposits.

On the other hand, VCS has enabled shipping lines to experience reduced operational and financial risks. This has also allowed improved turnaround of containers, enabling shipping lines to optimise their resources and focus on other value-added services. VCS has reduced regional risk, making it more attractive to shipping lines.

According to John Mathenge, Regional Managing Director, Viaservice Limited, the company is in Tanzania serving 65 percent of clearing and forwarding agencies an equivalent of more than 600 companies. In Kenya, four shipping lines have been onboarded and another three are lined up.